GEO 114/2018 - Taxes and parafiscal charges due from 2019
GEO 114/2018 - Taxes and parafiscal charges
At the end of 2018, the Ministry of Finance announced a significant number of tax measures, which will take effect from 2019, set out in GEO 114/2018, published in the Official Journal of Romania no.1116 (29 December 2018). These comprise increased or newly introduced parafiscal charges and tariffs, extension of the period of applicability of certain taxes that would otherwise have ceased to apply after 2018, as well as tax incentives dedicated to specific economic sectors. These changes will be briefly presented in this newsletter.
The immediate and direct impact affects financial services and the private pension system, energy, telecommunications, cigarette production and gambling. The construction sector is the only area which benefits from tax incentives, but companies in the sector are required to increase the minimum guaranteed basic salary to 3,000 RON.
Financial services sector
A new tax on the financial assets of banking institutions has been introduced, defined as credit institutions, Romanian legal entities and Romanian branches of credit institutions of foreign legal entities. (In the initial proposal the tax would also have been applicable to Non-Banking Financial Institutions as well as any other financial institution).
The tax is payable quarterly, and is determined by applying progressive rates to the balance of the existing financial assets at the end of the quarter. Tax rates (between 0.1% and 0.5%) are set according to the ROBOR quarterly average and apply progressively depending on by how much the quarterly ROBOR average is above the threshold of 2%, as follows:
|Quarterly average of ROBOR above the threshold
||Asset tax rates
|0, 51% – 1%||0,2%|
|1,01% - 1,5%||0,3%|
|1,51 - 2,0||0,4%|
The quarterly average of the ROBOR will be determined by the National Commission for Strategy and Prognosis and published on its website.
The tax must be calculated, declared and paid no later than 25th of the month following the quarter for which it is due. Thus, the first reporting and payment deadline is 25 April 2019, based on the balance of financial assets registered at the end of the first quarter of 2019. The new tax will be a deductible expense for the purposes of calculating profit tax.
GEO 114/2018 makes changes to the treatment of privately managed pension funds. Contributors to private pension funds may now opt to transfer their contributions to the public pension system if they have contributed to the private fund for at least 5 years, and all the contributions accumulated up to the transfer date remain in the private pension fund. In addition, participants will have the right to withdraw from the privately administered pension fund system on request.
The operation of private pension funds has been modified as follows:
- The minimum social capital required to manage a private pension fund has been increased, from EUR 4 million to a percentage of participants’ contributions. This percentage increases progressively up to a maximum of 10% of the value of the contributions. For 2019, two deadlines have been set, by which pension funds must demonstrate that they have at least the minimum social capital, 30 June and 31 December 2019.
- The level of management fees that can be charged by private pension fund managers has been significantly reduced. The initial amount of the management fee has been reduced from a maximum of 2.5% to only 1%, of which 0.5 % will be transferred to the public pensions authority (Casa Nationala de Pensii). The maximum monthly commission, based on the total net assets of the privately managed pension fund, has been set at between 0.02% and 0.07% (depending on the rate of return of the fund relative to the inflation rate). (Under the previous rules, the maximum was 0.05% in all cases).
GEO 114/2018 extends the application of the special tax on monopoly activity in the electricity and natural gas sector (as set out by GO no. 5/2013), as well as the tax on the exploitation of natural resources (as set out by GO no. 6/2013). These will now be payable up to 31 December 2021. (Under the previous legislation, these taxes would have ceased to apply as from the end of 2018).
A 2% tariff on turnover has been introduced for companies in the energy sector which hold licenses granted by the National Regulatory Authority for Energy ("ANRE"). The payment will be collected by ANRE from all license holders in the electricity, electricity and heat in cogeneration and natural gas sectors.
GEO 114/2018 also amends the Law on Electricity and Natural Gas (no. 123/2012). Between 1 March 2019 and 28 February 2022, the supply of electricity to household customers will be carried out under conditions regulated by ANRE. Similarly, between 1 April 2019 and 28 February 2022, producers, including their subsidiaries and/ or affiliates belonging to the same economic interest group carrying out both extraction activities and sales of natural gas extracted from Romania, are required to sell at a price of 68 lei/ MWh the quantities of natural gas resulting from their current domestic production activity to suppliers and eligible final customers. They may no longer conclude delivery contracts on Romanian territory at prices higher than 68 lei/ MWh. The differences in the acquisition costs in the years 2018 and 2019 incurred by suppliers, and not recovered through the prices charged, may be recovered up to 30 June 2022, according to ANRE regulations.
The monitoring fee charged to providers of public electronic communications networks and providers of electronic communications services has been increased from 0.4% to 3% of the previous year’s turnover.
Minimum values have been introduced for the granting of licenses for the use of radio frequencies under competitive or comparative selection procedures. These values have been set at 4% or 2% (depending on the frequency band) of turnover for the year preceding the granting of the license, multiplied by the number of years for which the frequency is licensed. At the same time, the extension of the validity period of a license for the use of radio frequencies granted through the selection procedure is conditional upon the payment of a license fee amounting to 4% of the turnover of the previous year, multiplied by the number of years for which it is licensed.
Certain penalties for administrative offences in relation to electronic communications have been increased from 2% to 5% of turnover, and, for repeated infringements, from 5% to 10% of turnover. Furthermore, penalties for the use of unlicensed radio frequencies or after expiry of the validity period, have been set at 0.1% of turnover per day. A new penalty has been introduced in relation to the physical infrastructure of electronic communications networks. Thus, providers of electronic communications networks which conclude contracts for the installation, maintenance, replacement of electronic communications networks and infrastructure elements necessary for their support or for access to property, without the right of access or in the absence of a building permit, are subject to a fine either of up to 10% of turnover, in proportion to the number of users served without authorization, or 1% of turnover per 100 users.
Cigarette production sector
As from 1 January 2019, the total excise tax for cigarettes has increased to 483.74 RON/ 1.000 cigarettes. Also, the annual level of excise duties for cigarettes has been modified from the schedule set out in Annex no. 1 of Title VIII of the Fiscal Code.
The specific excise in the first quarter of the year will be 372.73 RON/ 1.000. A new level will be approved by an Order of the Minister of Public Finance by 1 March 2019.
In addition, the excise duty rate will no longer include the contribution to the financing of health contributions and the 1% payment due to the Ministry of Youth and Sport. Instead, the full excise amount will be paid to the state budget to one account.
As from 1 January 2019, online gambling organisers must pay a tax of 2% of their total monthly receipts. The tax must be declared and paid monthly by 25th of the month following that in which the participation receipts were collected. Furthermore, licensed gambling operators must also pay annual contributions to the National Gambling Office to support social responsibility programmes in relation to gambling, rather than to the fund to prevent gambling addiction. The level of contribution varies depending on the licensing class and the type of gambling practiced, and the amount is set between 1,000 and 5,000 euros annually.
In addition, GEO 114/2018 increases the tax on type A slot machines from 2,600 euros to 3,600 euros and eliminates the right to the 10% bonus granted for full advance payment of the annual taxes for gaming authorization for casinos, poker clubs and slot machines.
As stated by GEO 114/2018 the basic guaranteed national minimum wage in the construction sector, applicable between 1 January 2019 and 31 December 2028, has been set at 3000 RON net, not including bonuses and other additions, for a normal work schedule.
Furthermore, for a 10 year-period, i.e. from 1 January 2019 to 31 December 2028, the following tax reliefs will be applied for employees with earnings up to 30,000 RON per month, with employers in the building sector (the list of relevant CAEN codes is detailed in the Ordinance), if at the end of each month, at least 80% of their total turnover derives from construction:
- Exemption from payment of personal income tax. An order detailing the application methodology will be issued;
- Exemption from the payment of health contributions. The employees nevertheless remain insured between 1 January 2019 and 31 December 2028 in the social health insurance system,
- A reduction from 25% to 21.25% of the social security contribution due by employees. (This reduction is because employees have been exempted from the contribution to a privately managed pension fund).
Employers in the construction sector benefit from the following facilities:
- A reduction in the insurance contribution for labor from 2.25% to 0.34%. This is payable into the Guarantee Fund for the payment of salary claims.
- Exemption from the payment of social security contributions owed by employers for work carried out under particular, special or other working conditions. However, construction professionals continue to benefit from rights relating to occupational injury, occupational disease, unemployment insurance and sickness insurance benefits including medical leave without the requirement for employers to pay the insurance contribution for labor.
Tax measures of a general nature
The issues covered are as follows:
Clarifications in relation to income tax
GEO 114/2018 states that taxpayers who owe tax based on presumptive income but have opted to pay on their actual income are required to declare the actual income in the annual Single Declaration for income tax and social contributions. However, taxpayers who derive income from rent denominated in RON are not required to list this in the Single Declaration if they have opted to apply the notional deduction (rather than deduct the actual expenses) and if at the end of the year they do not fall into the category of those who must declare rental income as being income from self employment.
The deadline for submitting annual income statements to the competent tax authority by associations (except for those which earn income from agricultural activities) has been bought forward to 15 February of the year following that in which the income was earned. (Under the previous legislation, the deadline was 15 March).
New provisions have been introduced on the tax regime applicable to cultural vouchers. This is the same as the regime applicable to meal vouchers, holiday vouchers and nursery vouchers, i.e. they are subject to income tax but not social contributions. A new law on the legal framework for cultural vouchers entered into force on 1 January 2019 (Law 165/2018).
GEO 114/2018 clarifies the value of the gross minimum wage indicator to be used for setting social contributions in the case of labor contracts for which the income is lower than the minimum wage (e.g. part time contracts).
GEO 114/2018 states that dividend income taken into account for tax and social contributions purposes as of 2018 is the income earned in 2018. This clarification is intended to eliminate situations in which the same dividend distributed in the years prior to 2018 and for which CASS was payable in the year of distribution is also taken into account in setting the ceiling for 2018. Thus, when establishing the annual ceiling for the establishment of CASS, dividends "distributed and collected as from 2018" are taken into account.
Provisions on Value Added Tax
The period of application of the optional reverse charge mechanism in connection with certain transactions under VAT law, such as grain delivery, transfer of green certificates and mobile phone provision, has been extended until 30 June 2022.
It is expected that associations between two or more local public authorities will be regarded as VAT taxable persons for the supplies of utilities to their members.
Provisions on excise duties and special taxes
The 1% duty on beer, wine, fermented beverages other than beer and wine, intermediate products, ethyl alcohol, cigarettes and cigars is no longer due to behalf of the Ministry of Youth and Sport, and the contribution to the financing of health expenditure is no longer payable for ethyl alcohol and manufactured tobacco.
Under GEO 114/2018, the excise duties for these product categories as well as the above-mentioned contributions are payable in full to the state budget and to a single account. The level of excise duties, as set out in Annex 1 of Title VIII - Excise duties and other special taxes- in the Fiscal Code remains unchanged.
GEO 114/2018 also states that if local councils fail to exercise their right (as set out in Article 491 of the Fiscal Code) to set the rates for local taxes and duties due for the following fiscal year at least 3 working days before the end of the fiscal year, the maximum rates will apply by default.
Provisions on day laborers’ activity
Legislation on the exercise of occasional day-to-day activities, on which taxes paid are low, has been drastically modified by limiting the sectors in which day laborers can be employed to just three (agriculture, forestry, fisheries and aquaculture). Hence day laborers can no longer be used in restaurants, hotels, catering, collecting, treating and disposal of non-hazardous waste, recovery of materials, etc. In addition, the number of days in a year in which these activities can be carried out has been limited. A penalty of between 500 RON and 2,000 RON has been introduced for failure by a day laborer to observe the maximum number of days in which a person can carry out day-to-day activities.
Provisions on the rescheduled payment of tax obligations
The rules on rescheduling of payments have been made more flexible, as follows:
- It has been made possible to include in a rescheduled payment those tax obligations that are a condition for maintaining the current rescheduled payment. Thus, the fiscal obligations as well as the budgetary receivables sent for recovery to the fiscal body due in the period between the date of issuance of a tax attestation certificate and the date of issuance of the rescheduling decision may be rescheduled.
- The continuation of rescheduled payments may be requested twice in a calendar year and not once as under the previous legislation.
- The debtor is given the right to request after the notification of the decision to maintain rescheduled payments, up to the 90 day deadline, the inclusion of the tax receivables for which the right to make rescheduled payments has been lost, as well as the tax receivables due between the date of loss of the right to reschedule payments and the date of communication of the decision to maintain the validity of the rescheduling. Moreover, at the debtor's request, the rescheduling period may be extended.
- The possibility has been introduced of deferring payment, at the debtor's request, of delay penalties to be paid in relation to rescheduled payments if during the rescheduling period the debtor has guarantees to cover the remaining rescheduled payment obligations . This creates fair treatment for those debtors which can provide sufficient guarantees at the time of the granting of the rescheduling.
In applying this Ordinance, various application norms will be issued to clarify how taxpayers calculate, declare and pay the taxes, duties, contributions and parafiscal charges introduced or modified by this legislation. KPMG will give details of these as soon as they are published.
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